Negative press about working conditions and markups has dented Flight Centre’s stock price, despite record financial results. The claims have been denied, but the share price is still suffering. The mural incident doesn’t do anything to bolster confidence in corporate culture.

— Allan Leibowitz

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Editor's Note: Gateway is a Skift series featuring first-hand, original stories from our correspondents embedded in cities around the world. The logo reflects where the correspondent is based and not necessarily the article's focus. Read about the series here.

The share price of Australia’s largest travel company, Flight Centre, has taken a pounding, despite enviable financial results in its year-end reporting.

Flight Centre, with retail, wholesale and corporate travel operations around the world, saw its share price plunge nearly 18 percent to $41.72 (Australian $56.98) in four days following a report by national broadcaster ABC condemning the travel giant’s business and employment practices. The 7.30 Report television expose aired former employees’ claims of staff underpayment and rampant gouging of customers.

According to the report, the base wage for a Flight Centre consultant is $24,600 (A$33,500) before tax, which is almost $2,950 (A$4,000) below the minimum wage. Disgruntled staff alleged they were forced to mark up fares and hotel rates to boost their commissions.

“Staff detail a practice as simple as reserving a flight, then manually adding an extra amount to the booking in Flight Centre’s online system — ranging from as little as $30 to hundreds or even thousands of dollars — before revealing the total price to the customer,” the program reported.

It quoted a current staff member who said she feels like the process rips-off customers and there was a sense of guilt that came with the marking-up.

The program included a denial from a Flight Centre spokesperson, who said: “A central team in Australia proactively monitors margins on individual transactions and action is taken if the margin earned is considered excessive. Action can and has included dismissal. The company strongly believes in a fair margin and refers to this in its philosophies.”

When asked for further comment, a Flight Centre spokesperson referred Skift to the above comments.

Flight Centre’s corporate culture also came under fire, with the Australian business icon likened to a cult where workers are encouraged to “work hard, play hard.” The party culture was said to alienate those who didn’t join in and had been condemned just a month ago, when a new mural was unveiled at the company’s Auckland, New Zealand head office depicting a female employee, with her skirt hitched up, one shoe missing, a liquor drink in her hand and a pair of devil’s horns on her head at Flight Centre’s famed Global Gathering.

All the allegations have been strongly denied by the company, with founder Graham ‘Scroo’ Turner describing the television report as “a beat up.” Turner said he was not worried about the impact of the ABC report, which was extensively repeated in most Australian media, “but I am worried about all this reflecting very unfairly on our frontline staff.”

Record Transactions and Profits

The unwanted attention has taken the gloss off another solid financial performance, which saw Flight Centre report last week that its full-year profit increased 13.9 percent to $193.61 million (A$262.9 million) on a 6.5 percent hike in revenue to $2.16 billion (A$2.95 billion).

Flight Centre surpassed its previous record for total transaction value, notching up transactions worth $15.99 billion (A$21.8 billion) in 2017-2018 – up 8.5 percent from the previous year. Importantly, from a diversification point of view, 49 percent of the transaction value was generated outside Australia.

Markets outside Australia also contributed strongly to profits, and record surpluses were recorded in the U.S., Canada, Mexico (profit in the Americas more than doubled), United Kingdom, South Africa, United Arab Emirates, the Netherlands, Singapore, and Malaysia.

Business Transformation

Operationally, Flight Centre reported good progress with its Rebrand & Grow plan in Australia, where it dumped underperforming brands and consolidated its businesses, closing 90 shops and redeploying 1,200 salespeople across 250 stores during the second half of the year.

The business transformation process also saw a focus on a single core brand (FCm) in South East Asia, the closure of a loss-making leisure operation in the United Arab Emirates, and a repositioning of leisure businesses in Singapore, Hong Kong and North America.

The Flight Centre Group is looking for an ongoing contribution from its corporate travel operations, boasting wins worth $730 million) (A$1 billion) for FCm in the 2018 financial year. Corporate travel is now “truly global,” with recent acquisitions bedded down and expansions into other key markets on the cards, according to the company.

Ironically, one of the future issues flagged in Flight Centre’s results report was “investing in people,” with the company noting that it is working on a new Australian leisure wage model and currently engaged in negotiations for an enterprise bargaining agreement. In Australia, enterprise agreements are contracts made at an enterprise level between employers and employees and their union, about terms and conditions of employment.

The Australian Services Union, which represents travel agent staff, has confirmed that it is in discussions with Flight Centre, aiming to “significantly improve workers’ pay and conditions and bring about significant change.”

The union is also concerned about “cultural issues with Flight Centre management’s behavior and the unreasonable expectations and pressure placed on workers,” according to a statement.

No doubt, the recent publicity, combined with union pressure, will work strongly in favor of the employees in the negotiations, with Flight Centre keen to demonstrate the substance behind its oft-stated claims about providing the “best workplace and being an employer of choice.”